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Global stock markets plummeted tonight on growing fears that the revival in the world economy will stall.
The FTSE 100 index was down 77.43 points to 4636.54 in London and the Dow Jones Industrial Average sank 173.21 to 9143.05 in New York.
Sterling also tanked as City bears ramped up pressure on the UK currency following the Bank of England's decision to flood the shrinking economy with yet more newly printed cash.
The pound dived a whopping 2.52 cents against the US dollar to $1.6294. It was trading at $1.70 before the Bank extended its programme of quantitative easing by £50 billion to £175 billion 11 days ago.
Markets have rallied strongly in recent months on hopes that recovery from the worst recession since the Second World War is just around the corner.
But tonight's carnage in London and New York was mirrored in Europe and followed a nasty sell-off in Asia this morning as optimism faded.
Arifa Sheikh-Usmani, a trader at Spreadex, said: “Markets still feel that any potential upturn in the global economy will be short-term.”
Eric Green, director of research at Penn Capital in Philadelphia, said: “This is a healthy correction from what was basically a straight-up market. There's a lot of negativity still out there.”
A grim report showing consumer confidence remains weak in the US aggravated doubts about the strength of the recovery in the global economy and overshadowed news that Japan has climbed out of recession.
David Jones, chief market strategist at IG Index, said: “It is a wall of red for blue-chip stocks. The news Japan has come out of recession has not been enough to lift markets.”
He said sterling was on the slide again as investors continued to react to the Bank's shock decision to pump even more new money into the economy.
The move, on 6 August, triggered a slump in sterling which renewed its fall six days later when Bank Governor Mervyn King warned “recovery could be slow and protracted” in the UK.
He said the recession “appears to have been deeper than previously thought” and it was “more likely than not” that inflation will fall below 1%.
The warning, and the fresh injection of central bank money, was taken as a sign that interest rates will remain at 0.5% for some time yet.
It also led many in the City to think the Bank favours a weak currency, prompting a series of downbeat forecasts today. “I'm super-bearish on the pound,” said Hans-Guenter Redeker, the London-based head of foreign exchange at BNP Paribas. “The Bank of England has made it clear it can't afford a stronger currency.” He forecast the pound would fall to $1.50 in 12 months.
John Taylor, chief executive of New York hedge fund FX Concepts, said sterling will “get crushed” and sink as low as $1.45. “It's a race for the least ugly of the candidates,” he said, “and I would argue that the US is going to be the least ugly for a while.”
Others were more upbeat and said the measures taken by the Bank and the Government to ease the slowdown will boost sterling. HSBC predicted the pound would rise to $1.75 by the end of next year — midway between the high of $2.12 in November 2007 and the low of $1.38 in March this year.
Reader views (23)
This won't mean a thing to most ordinary people--who, if they have a job, only care whether they will get a pay rise this year or next.
Unfortunately,wage inflation will be the Tories task when they win next year.
- William Grierson, Kimpton-UK
When will readers realise that Keith is taking the mickey, but a lot of you are too up-tight to realise it. The same career path taken by Blair, Brown & Co. is open to us all so we should cheer them on. Socialism is not working and 5-million on benefits proves it.
- Never Eat Tuna Again, London
Brown appears to be a very confused man if in 1992 he said "a weak currency is the direct result of a weak government" and in 1993 he said " a weak currency is NO reflection of a weak government"!!
- Peter, Watford UK
Can someone please inform the electorate where all this cash Mr Brown keeps having printed is going to??
Are the banks keeping it to pay their staffs Xmas Bonus?
Keith PRICE
Am I the first to work out that actually you've a very dry sense of humour and being very sarcastic really about your mate Mr Brown?
Merry Xmas All.
- Biffy, London
Could never eat please tell us to which Country he/she refers to when he/she says Socialist Government,not Great Britain surely,we have the best Conservative Government this Country has had for years,of course the Conservative front bench are correct,when they continually blame NU Tory for stealing all their policies.
- Colin, Bristol
"and now our money is worthless."
Hardly close to the truth David, when you can get almost 2 dollars for one pound.
- Keith Price, Luton England
Quoting Gordon Brown accurately, or re-writing what he said to alter the meaning, cannot disguise the fact that the British economy is in an utter mess created by Chancellor, now PM, Brown. The chickens are coming home to roost with a vengeance. We may think things are bad now, but they will be getting a whole lot worse once we have to start paying back for generations the debt amassed by Brown. Long may his name live on in ignominy.
- James Elliott, Eastbourne UK
Not so much a roller coaster, Keith, more like freefall for the last couple years (used to be 1.50 euros to the pound, down to about 1.10 now). Hmmm, wonder what else happened a couple years ago?
And before you point out yet again that this is a global problem, sterling is the only currency to have taken such a battering!
- Marianne, SW France/London
Blimy,its like living in Zimbabwe,crime up,NHS rubbish,corrupt MPs and now our money is worthless.
- David, london
"ALL MRS THATCHER MONEY IS GONE"
No Gian, she still lives in Eaton Square - the most expensive property location in our capital city.
- Keith Price, Luton England
The unemployed CANNOT spend; savers WON'T spend until they receive interest on their money - thus we are left, here on fantasy island, to rely on Brown and his crew of halfwits, chancers and charlatans to sort the economy.
DON'T, whatever you do, hold your breath.
- Ted, London
They just cannot understand the whole economic model is flawed. The world is of a finite size and has finite resources. Therefore it is unsustainable to have month-on-month growth. Two areas need to be concentrated on:- i) limit population growth and ii) conserve resources. There is ultimately no point if your house is worth £7 billion but you have no food to heat and no energy to heat it!
- Michael, London
NO MORE INDUSTRIAL PRODUCTION
WEAK AGRICULTURE
COUNTRY NEAR THE BANKRUPCY
THIS AFTER YEARS OF LABOUR.ALL MRS TATCHER MONEY IS GONE
HARD TIMES ARE COMING
- Gian Barbanti, London
Export Growth ?
What exports ?
Although I suppose we do make Japanese cars.
Must help the yen considerably
- Bernard Parke, GUILDFORD
"By the way Keith, your genius Brown ruined our dream of retirement abroad "
But Ronnie you surely didn't expect a labour PM to finance your long holiday in the Med did you ?
- Keith Price, Luton England
Please stop knocking socialism. Tony Blair and Mandelson have proved that any dyed-in-the-wool socialist can amass millions, start wars and become good catholics. Don't people realise that our boys are dying in Afghanistan so that they can introduce laws allowing the beating, starving and raping of cheeky wives. And, don't forget last but not least they are dying to stop the drugs trade. That's why we spent a fortune bringing a nigerian woman drug smuggler to the UK. The list of socialist successes goes on brothers. Keep the red flag flying.
- Never Eat Tuna Again, London
Here's a plater one he made Andrew
'A weak currency is no reflection of a weak Government'
-Gordon Brown 1993.
- Keith Price, Luton England
Where do these figures come from? I am waiting to exchange Euros to pounds from the sale of some land in France, and the exchange rate is exactly the same as all last week.
By the way Keith, your genius Brown ruined our dream of retirement abroad through his childish fiscal management, and the lives of thousands of others whose pensions no longer cover their living costs.
Now, due to Brown's gross incompetence tens of thousand s of previously independent people are returning to Britain to live off the state. Well done Gordon, but they won't be voting for Labour will they?
- Ronnie, Billericay England
Keith Price:
Are you the only member of the Gordon Brown fan club?Let me give you a quote:
'A weak currency is a direct result of a weak Government'
-Gordon Brown 1992.
What this tells us is that recovery will not come until 2010 although to be fair a weak currency won't do any harm as it will encourage export growth
- Andrew Nicholls, Ely ,England
Poor old Brown how do you sleep at knight.
- Richard Edmunds, Rayleigh Essex
We all know that the roller-coaster of dterling is no inducator of economic success or failure any more.Our PM is doing a superb job, and long may he continue to do
- Keith Price, Luton England
Keep printing Money !!!
We will soon be a banana republic.
Will we never learn ?
- Bernard Parke, GUILDFORD
WHY ARE FRANCE, GERMANY AND JAPAN RECOVERING FROM THE RECESSION WHEN GORMLESS BROWN SPOUTED THAT THE UK "IS WELL PLACED" TO RECOVER, BUT HAS BEEN OVERTAKEN BY SEVERAL OTHER COUNTRIES?
MORE SPIN AND WAFFLE FROM GORMLESS BROWN.
- Reuben Camara, Republic of Morecambe, UK
